Mortgage protections are here; Starting on Friday lenders must ensure you can ...
DAVID J. PHILLIP/ASSOCIATED PRESSFive years after the worst financial crisis since the Great Depression, mortgage protections are finally here.
Starting on Friday, new rules from the Consumer Financial Protection Bureau (CFPB) are going into effect to ensure that borrowers don't get stuck with lousy mortgages they can't afford - and the nation doesn't fall into another housing crisis.
Many lenders have already tightened their lending standards in the wake of the housing crisis. The new rules are aimed at preventing a future round of reckless lending.
'These simple principles will help us ensure that the mortgage market never melts down again the way it did just a few short years ago, making people's lives miserable in the process,' CFPB director Richard Cordray said in a speech Tuesday before the National Association of Realtors.
First and foremost, the rules mean your bank can no longer lure you into a mortgage that doesn't match your budget.
Lenders will have to determine a borrower's ability to repay a loan by considering income, assets, debts and credit history - the kind of due diligence that was given short shrift in the years leading up to the financial meltdown.
'Every lender has to do some commonsense things to make sure the borrower can pay the loan back,' Gail Hillebrand, associate director at the CFPB, told the Daily News.
The new rules also create a special category of 'qualified loans,' that have even higher standards.
With these types of mortgages, a borrower's debt-to-income ratio has to be less than 43%, and the loan can't have risky features like negative amortization and interest-only payments.
Points and fees will be limited - no more than 3% for a loan of more than $100,000.
In exchange, banks that offer these qualified loans - which are expected to be the bulk of the market - will be protected from lawsuits filed by borrowers.
There are new rules for mortgage brokers, too. If someone helps you find a mortgage, he can no longer steer you into a more expensive loan just because it will score him a bigger commission.
The new rules also mean more transparency. Your mortgage servicer must now send you a clear monthly statement so that you can see how they are crediting your statement.
If you have an adjustable rate mortgage, your servicer will now have to give you early warning when the rate is about to change.
'No surprises and no runaround,' Hillebrand said.
There are also welcome changes for distressed homeowners.
Mortgage servicers will now have to call you by the time you are 36 days late on your payments. With limited exceptions, servicers can't initiate a foreclosure until you are more than 120 days delinquent.
If you're having trouble making payments, your loan servicer will have to work harder to help you find a solution.
'Millions of Americans lost their homes during the past recession because of reckless lending practices,' said Norma Garcia, manager of Consumers Union's financial services team.
'These new rules will help promote more responsible lending and borrowing and ultimately benefit both homeowners and the economy.'
pfurman@nydailynews.com
Homeowners' hotlines
The CFPB accepts complaints about mortgages. Contact the CFPB at 855-411-2372 or go to consumerfinance.gov/complaint.
Having trouble making your mortgage payment? Contact a HUD-approved housing counseling agency by calling 888-995-HOPE.
What new mortgage rules mean to you
**Banks can no longer lure you into a mortgage you can't afford.
**Mortgage brokers can't steer you into a more expensive loan just because it will score them a bigger commission
**For a new class of 'qualified loans,' a borrower's debt-to-income ratio has to be less than 43%, with no risky features
**Mortgage servicers have to notify borrowers who are 36 days late on payments
**A foreclosure, generally, can't be initiated until you are more than 120 days delinquent.
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